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Are Earnings Estimates Going Down?

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This story originally appeared on Zacks

Earnings and revenue growth has come down in the ongoing Q3 earnings season from the first-half’s breakneck speed, but it is still very high.

– Zacks

You can see this in the comparison charts below that shows the Q3 earnings and revenue growth for the 445 S&P 500 members that have reported results through Friday, November 5th.

Zacks Investment ResearchImage Source: Zacks Investment Research

The unfavorable comparison to the first half of the year isn’t only with respect to the growth rates, as the proportion of these companies beating EPS and revenue estimates is also tracking below what we had seen from this same group earlier in the year, as you can see in the charts below.

Zacks Investment ResearchImage Source: Zacks Investment Research

The decelerated growth pace notwithstanding, aggregate Q3 earnings for the S&P 500 index are on track to reach a new all-time quarterly record, surpassing the record set in the preceding quarter. You can see this in the chart below that shows the 2021 Q3 aggregate total at $475.8 billion.

Zacks Investment ResearchImage Source: Zacks Investment Research

The one notable disconcerting development this earnings season is on the revisions front, with estimates for the current period (2021 Q4) turning modestly lower over the last few days.

Zacks Investment ResearchImage Source: Zacks Investment Research

This is in contrast to the persistent positive revisions trend that we have been seeing since the Summer of 2020. While the magnitude of negative revisions in the aggregate to Q4 estimates is fairly modest, it is relatively more pronounced for the Retail and Transportation sectors.

A case in point is Amazon AMZN, part of the Zacks Retail sector, whose Q4 consensus EPS estimate has dropped from $12.13 a few weeks back to $5.11 at present.

Partly offsetting these estimate cuts are rising estimates for the Energy sector, which have been steadily going up lately.

While estimates for 2021 Q4 have modestly come down, we are seeing the opposite for next year’s estimates. Earnings estimates for full-year 2022 have gone up +24.8% since January 2020 and +10% since the start of October.

Sectors enjoying the strongest positive estimate revisions include Consumer Discretionary, Autos, Transportation, Aerospace, Energy, Construction, Business Services and Finance. 

The bottom line on the revisions front is that it still remains positive, with estimates for next year going up even though they have trended down modestly for the current period (2021 Q4).

Q3 Earnings Season Scorecard

Including all the results that came out through Friday, November 5th, we now have Q3 results from 445 S&P 500 members or 89.2% of the index’s total membership. Total earnings (or aggregate net income) for these companies are up +42.9% from the same period last year on +18.6% lower revenues, with 80.2% beating EPS estimates and 74.4% beating revenue estimates. The proportion of these companies beating both EPS and revenue estimates is 62.9%, the blended beats percentage.

The comparison chart below shows how the Q3 blended beats percentage compare to other recent periods for this same group of 445 index members.

Zacks Investment ResearchImage Source: Zacks Investment Research

This week brings Q3 results from more than 850 companies, including 13 S&P 500 members. The notable index members reporting results this week include Disney DIS, PayPal PYPL and DR Horton DRH

For the Technology sector, we now have Q3 results from 82.5% of the sector’s market capitalization in the S&P 500 index. Total Q3 earnings for these Tech companies are up +35.8% from the same period last year on +17.3% higher revenues, with 86.4% beating EPS estimates and 71.2% beating revenue estimates.

The comparison charts below put the sector’s Q3 EPS and revenue beats percentages in a historical context.

Zacks Investment ResearchImage Source: Zacks Investment Research

As you can see above, the proportion of these Tech companies beating revenue estimates has been clearly on the low side this earnings season.

Expectations for Q3 & Beyond

Looking at the quarter as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total Q3 earnings for the S&P 500 index are expected to be up +39.7% from the same period last year on +16.5% higher revenues.

The chart below presents the earnings and revenue growth picture on a quarterly basis, with expectations for 2021 Q3 contrasted with the actual growth achieved over the preceding four quarters and estimates for the following three.

Zacks Investment ResearchImage Source: Zacks Investment Research

The chart below shows the comparable picture on an annual basis.

Zacks Investment ResearchImage Source: Zacks Investment Research

For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Looking At Margins in the Face of Inflationary and Logistical Issues

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
The Walt Disney Company (DIS): Free Stock Analysis Report
 
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